Key News

Asian equities were largely higher overnight, while Mainland China underperformed. 

The real estate sector was the topic du jour as May sales fell by -33% year over year (YoY), which is an improvement from April’s decrease of -45% YoY. Real estate stocks underperformed, and profit-taking continued. The sector rose by 45% from April 19^th to May 17^th but has since retreated by -12% since the high. We still prefer real estate bonds as the sentiment or the lack of it swings the stocks.

Semiconductor stocks continue to outperform on AI enthusiasm, while energy and materials outperform, with the latter driven higher by precious metals.

Mainland investor sentiment was affected by the CSRC's announcement that 99 microcap companies will be identified with ST (special treatment) added to their ticker due to delisting risk. With 47 companies expected to be delisted, it isn’t surprising that their stock prices fell by -10%, with the Mainland microcap indices off at -6%. It is important to remember that the companies identified are very small companies. 

Hong Kong closed in the green though off intra-day highs. Hong Kong’s most heavily traded stocks were Tencent, up +0.21% with 2.62 million shares repurchased today, Meituan, up +0.09% though after the close revenue, adjusted net income, and adjusted EPS beat analyst expectations, Alibaba, up +0.19% after the company announced that launch of Alibaba Guaranteed to “help simplify global sourcing and provide a more flexible and reliable supply chain for small and medium-sized enterprises in the U.S. and beyond.”, SMIC, which gained +5.61%, and Xiaomi, which closed higher by +1.47%. Mainland investors bought $469 million of Hong Kong stocks via Southbound Stock Connect. Trade data will be reported tonight. Bloomberg News reported that the combined market capitalization of Microsoft, Nvidia, and Apple is $9 trillion and larger than the combined market capitalization of every Chinese company. That makes sense...

The Hang Seng and Hang Seng Tech gained +0.28% and +0.86%, respectively, on turnover down -0.92% from yesterday, which is 113% of the 1-year average. 191 stocks advanced, while 283 fell. Main Board short turnover fell -63% from yesterday, which is 99% of the 1-year average, as 15% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Growth and large caps outpaced value and small caps. The top sectors were materials, up +2.42%, energy, up +1.77%, and technology, up +1.75%, while real estate fell -1.64%, healthcare fell -0.58%, and financials fell -0.35%. The top sub-sectors were semiconductor stocks, media and entertainment, and technical hardware, while real estate, automotive, and insurance were the worst. Southbound Stock connect volumes were moderate/high as $469 million of Hong Kong stocks were bought, with China Mobile a moderate net buy and SMIC a small net buy, while Kuiashou, Meituan, and SenseTime were small net sells.

Shanghai, Shenzhen, and STAR Board fell -0.54%, -1.68%, and -1.17%, respectively, on volume up +22.85% from yesterday, which is 100% of the 1-year average. 490 stocks advanced, while 4,547 declined. Large caps and value “outperformed”/fell less than small caps and growth. The top sectors were energy, up +2.1%; materials, up +0.55%; and utilities, up +0.5%, while communication services were down -0.94 %, healthcare was down --0.7 %, and financials were down -0.58%. The top sub-sectors were precious metals, coal, and marine/shipping, while forest, business services, and leisure products were the worst. Northbound Stock Connect volumes were moderate, as Cypc, Zhongji Innolight, and Foxconn were moderate/small net buys, while Midea was a moderate net sell, and TFC and Ping An were small net sells. CNY was off small versus the US dollar. Copper gained while steel was flat.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.24 versus 7.25 yesterday
• CNY per EUR 7.87 versus 7.87 yesterday
• Yield on 10-Year Government Bond 2.28% versus 2.28% yesterday
• Yield on 10-Year China Development Bank Bond 2.39% versus 2.39% yesterday
• Copper Price +0.45%
• Steel Price +0.00%/Flat